Commodity wrap - Oil, Copper, Gold, Grains (13.02.19)

Oil:

• OPEC cuts its crude output by 800 kbpd in January

• Saudi Arabia plans to slash its production and export by additional 500 kbpd by the end of March, it’s possibly a response to an expected comeback of crude supply from Libya as well as increased output in Iran

• OPEC expects a lower demand for its crude in 2019

• The oil market could reach a balance with the OPEC producing 30.6 mbpd

• Oil demand for oil totalled 98.76 mbpd in 2018, up by 1.47 mbpd compared to 2017, it was the higher increased than initially anticipated 1.26 mbpd

• Demand for oil could increase 1.24 mbpd this year and reach 100 mbpd

• Oil prices are rebounding in the hope of reaching a trade deal between the US and China which would lift transportation activity around the world

Demand for oil should increase in major economies this year but the rise is to be lower than in 2018. Source: OPEC

Saudi Arabia, UAE and Kuwait account for almost ¾ of the entire production cut. To allow the market to find its balance another 200 kbpd cut is needed. Source: OPEC

Brent prices are taking another attempt to break the crucial resistance of the form of the 38.2% retracement. In theory, looking at the RSI oscillator one may hope for moderate increases in the coming months. Taking into account a huge decrease in exports from OPEC and Venezuela to the US as well as the productions cuts in Saudi Arabia we expect oil prices to rise during the second quarter of 2019. Source: xStation5

Copper:

• Copper prices are rebounding from their crucial support around $6000

• Heavy rainfalls in South America caused that many mines were closed (particularly in Chile and Peru)

• Concerns over trade negotiations between the US and China have decreased of late, the credit supply seasonality in China and possible further yuan appreciation may positively affect copper prices in the short-term

• The long-term outlook for the copper market looks less optimistic: a decrease of export from Asia and the global PMI gauge do not bode well

Copper exports from Asia have lowered recently. Such moves tended to bring falls in copper prices in the past. Source: Bloomberg

Industrial metal prices and the global manufacturing PMI have diverged recently. In the medium-term it could act to the detriment of copper prices. Source: Bloomberg

Gold:

• Gold prices have not fallen of late due to the strong US dollar and a rebound in US yields

• Gold should respond to the demand zone around $1290/1300

• Option traders are not afraid of large moves in gold prices which could put a cap on bullish momentum in the near-term

ETF funds have cut their gold holdings but the move could be described as modest. Source: Bloomberg

The option market has settled down of late. Call prices are still above put prices. Source: Bloomberg

The moderate divergence between gold prices and TNOTE has not been a reason to deter bulls in the gold market as of yet. Source: xStation5

Grains:

• Lower corn stockpiles at the end of the season and lower soybean production

• Higher ending stocks of wheat

• The worse demand outlook for corn in the US

• Soybean prices are rising in anticipation of a trade deal between the US and China

• Lowered ending stocks of wheat, another deficit expected, lesser area where wheat is sown in the US

• The corn and wheat outlook in the US depends to the large extent on a potential trade deal

A modest fall in soybean stocks in the US. Source: Bloomberg, XTB

Wheat prices begin this year quite flat. Based on the seasonal pattern one may expect a jump in price over the next few weeks. Source: Bloomberg, XTB